‘Very Good Years’ Could Lie Ahead for Japan: Threadneedle

Japan’s equity market remains attractive and could benefit from “several very good years of corporate performance” if Prime Minister Shinzo Abe successfully implements his economic policies, said William Davies, the London-based head of global equities at Threadneedle Global Investments.

Mr. Davies said he expects Mr. Abe’s Liberal Democratic Party to win upper house elections later this month, enabling the full implementation of “Abenomics,” including the critical “third arrow” involving structural improvements to the economy.

“Should policy be rolled out successfully we think Japan could enjoy several very good years of corporate performance as profit margins rise,” Mr. Davies said in emailed comments.

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The Nikkei Stock Average’s recent pullback was a “necessary correction” following its dramatic gains in preceding months, he said.

In the short term, Threadneedle, which has $127.8 billion in assets under management, sees exporters with a yen cost base benefiting from a weaker yen–industry leaders such as Toyota Motor Corp. and Makita Corp. are among its investments. Financials such as Nomura Co. and Japan Exchange Group Inc. are expected to benefit from rising asset values and trading volumes, Mr. Davies said.

Over the medium term traditional lenders, real-estate investment trusts and home builders are likely to benefit from rising construction and demand for earthquake-proof housing, he said.

Should Abenomics succeed in generating inflation, retailers and consumer goods companies which have had margins persistently squeezed by deflation in the past also should benefit, he said.